Oil States International's Q3 2025 Earnings Call: Contradictions Emerge on Tariff Impacts, U.S. Land Restructuring, and Offshore Trends

Date of Call: October 31, 2025

Financials Results

• Revenue: $165 million (reported for Q3 2025)
• EPS: $0.03 per share GAAP; $0.08 adjusted per share

Guidance:

• Q4 consolidated revenue expected to increase 8% to 13% sequentially.
• Q4 adjusted EBITDA expected to be $21M to $22M.
• Full-year cash flow from operations expected to exceed $100M.
• Q4 book-to-bill expected to be >1x.

Business Commentary:

• Revenue Mix Shift:
• Oil States International reported that 75% of its consolidated revenues were generated from offshore and international projects in Q3, up both sequentially and year-over-year.

• This shift reflects the company's strategic multiyear focus on growing its offshore and international project-driven content, which generally comprises longer cycle, higher-margin work.

• Backlog Growth and Book-to-Bill Ratio:

• The company's offshore manufactured products segment achieved a backlog of $399 million and a book-to-bill ratio of 1.3x in Q3.

• The growth was boosted by strong military orders, supporting the company's outlook for incremental revenue and earnings growth moving into 2026.

• Impact of Tariffs on Downhole Technologies:

• The Downhole Technologies segment reported an adjusted segment EBITDA loss of $1 million in Q3 due to higher costs from tariffs and lower international activity levels.

• The tariff impact was primarily felt in the perforating side of the business, with gun steel imported from foreign sources facing a 98% tariff rate.

• U.S. Land Activity Decline:

• The U.S. land completion activity declined significantly, with the average U.S. frac spread count down 11% sequentially in Q3.

• The decline was attributed to lower crude oil prices and OPEC+'s decision to rapidly unwind over 2 million barrels per day of previous production cuts.

• Cash Flow and Free Cash Flow Generation:

• Oil States generated $31 million in cash flow from operations in Q3, representing a 105% sequential increase.
• The strong cash flow generation was supported by significant free cash flow of $23 million, with the company maintaining a strong financial position and paying off convertible senior notes at their maturity in April 2026.

Sentiment Analysis:

Overall Tone: Positive

• Management noted the quarter finished within guided EBITDA, backlog grew to $399M and 75% of revenues were offshore/international. CFO: "generated $31 million of cash flow from operations in the third quarter, double the amount we generated in the second quarter." Guidance: Q4 revenue +8%–13% and FY cash flow >$100M.

Q&A:

• Question from James Rollyson (Raymond James & Associates, Inc., Research Division): Color on conversations, margin profile, impact of tariffs and timing of backlog roll-off given strong bookings?
  Response: Backlog and bookings are strong and should support 2026 improvement as some projects shifted later; tariffs materially increased costs in Downhole consumables (gun steel), creating near-term margin pressure that the company expects to manage and ultimately pass to customers over time.

• Question from James Rollyson (Raymond James & Associates, Inc., Research Division): If you back out the tariff impact, was tariff the main driver of the Downhole negative EBITDA and when does recovery occur?
  Response: Yes—negative Downhole EBITDA was primarily tariff-driven (plus weak plug demand); recovery expected early next year as inventory normalizes and potential local assembly (e.g., Batam) reduces tariff burden (~6 months).

• Question from Stephen Gengaro (Stifel, Nicolaus & Company, Incorporated, Research Division): Have you realized the full margin benefit from U.S. land optimization and how does this unfold over next 12 months?
  Response: Transition largely completes by year-end; Completion & Production margins are expected to move to the high-20s–low-30s EBITDA range (from mid-teens), with lower revenue but materially higher free cash flow.

• Question from Stephen Gengaro (Stifel, Nicolaus & Company, Incorporated, Research Division): Outside of activity, have you seen the majority of the revenue impact from pared businesses already?
  Response: Yes—the majority of revenue reductions from high-grading/paring have already been realized.

• Question from Stephen Gengaro (Stifel, Nicolaus & Company, Incorporated, Research Division): Is current backlog conversion (e.g., percent converting in next 12 months) elongated vs prior year?
  Response: Backlog is modestly elongated due to military awards being multiyear; expected Q4 awards should shift conversion closer to historical levels.

• Question from Joshua Jayne (Daniel Energy Partners): Do you view customer capital shifting structurally offshore versus U.S. land and will offshore consume a greater share of budgets?
  Response: Management views the shift as more secular—offshore offers lower breakevens and longer-lived reserves—so offshore is expected to take a larger structural role; company is focused on offshore/technology differentiation.

• Question from Joshua Jayne (Daniel Energy Partners): Which products are driving the offshore backlog and can you elaborate on MPD and other technologies?
  Response: Backlog is driven by recurring connector products and high-tech production infrastructure (notably FlexJoint) and growing MPD adoption; Petrobras and other offshore customers are major demand drivers; wind/minerals remain small pilots to date.

• Question from Joshua Jayne (Daniel Energy Partners): On U.S. land, how do you avoid cutting too much and remain able to capture upside when activity recovers?
  Response: Not exiting U.S. land—company is selectively retaining higher-margin product lines and capabilities to ensure it can participate when activity recovers while eliminating low-return, commoditized offerings.

• Question from James Rollyson (Raymond James & Associates, Inc., Research Division): Did you confirm FY cash flow from operations of $100M+ and implications for Q4 free cash flow?
  Response: Yes—management reiterated expectation of >$100M operating cash flow for the year, implying a strong Q4 and a very large full-year free cash flow (management and CFO confirmed the math).

Contradiction Point 1

Tariff Impacts and Supply Chain Diversification

It highlights potential discrepancies in the company's ability to manage tariff impacts and supply chain diversification, which are crucial for financial performance and strategic positioning.

Excluding the tariff impact, was the negative EBITDA in CPS primarily due to tariffs, and when can EBITDA return to positive as inventory flows through? - James Rollyson(Raymond James & Associates, Inc. Research Division)

2025Q3: Tariffs were the main driver of negative EBITDA in Downhole Technologies. While plug demand was weak, it's expected to improve. It's anticipated that recovery will occur early next year, with efforts to reduce tariff impacts and pass costs to customers. The company is exploring supply alternatives and potentially moving gun assemblies to Indonesia to lower tariff burdens. - Cindy Taylor(CEO)

Any updated view on tariff impacts given recent changes since last quarter? - James Michael Rollyson(Raymond James & Associates, Inc. Research Division)

2025Q2: Tariff impacts are limited, due to diversified sourcing and offshore manufacturing capabilities. A minor increase in costs is anticipated for perforating, however, which is a smaller part of our business. - Cynthia B. Taylor(CEO)

Contradiction Point 2

U.S. Land Operations Restructuring and Margins

It involves expectations for the restructuring of U.S. land operations and the anticipated impact on margins, which are critical for operational and financial strategy.

Are we seeing the full impact of C&P on margins, or how will this unfold over the next 12 months? - Stephen Gengaro(Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q3: The transition in U.S. land operations is expected to be largely complete by year-end, with cleaner margins and higher EBITDA margins. Mid-teens margin levels are anticipated, with a focus on generating increased free cash flow. Revenue reductions are expected due to lower activity levels, but higher margins and free cash flow remain priorities. - Cindy Taylor(CEO)

As you continue to streamline U.S. land operations, could you provide guidance on the trade-offs between current market conditions and your improving cost structure and how these factors impact 2H '25 margins? - Patrick John Ouellette(Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q2: Restructuring of U.S. land operations will result in higher margins into 2026, with an expected range of 28% to 30%, driven by cost reductions and facility exits. - Cynthia B. Taylor(CEO)

Contradiction Point 3

Backlog and Order Flow Outlook

It highlights differences in the company's outlook for backlog and order flow, which are key indicators of future revenue and growth potential.

How are offshore drillers forecasting a rebound in activity (mid-late next year) and when might infrastructure FIDs accelerate? Given your strong booking quarter and positive commentary, could you provide color on current conversation flow, margin profiles, tariff impacts, and the timing of backlog conversion? - James Rollyson(Raymond James & Associates, Inc. Research Division)

2025Q3: Backlog is strong, with book-to-bill expected to exceed unity in Q4, driven by production infrastructure and NPD systems. Tariffs impact mainly the Downhole Technologies segment, with inventory buildup and potential pricing changes ahead. The company aims to leverage international growth and optimize supply sources. - Cindy Taylor(CEO)

What are your expectations for order flow in the next several quarters? - Stephen David Gengaro(Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q2: We expect offshore activity to continue, with a book-to-bill ratio north of 1 for the remainder of the year. Our long-cycle production infrastructure focus, along with new technology introductions like MPD systems, supports our outlook. - Cynthia B. Taylor(CEO)

Contradiction Point 4

Earnings Growth and Cash Flow Expectations

It involves changes in financial forecasts, specifically regarding earnings growth and cash flow expectations, which are critical indicators for investors.

Given the current earnings season, do offshore drillers expect a rebound in mid-to-late next year and a near-term activity bottom, while infrastructure industry participants anticipate increased FIDs next year and beyond? - James Rollyson (Raymond James & Associates, Inc., Research Division)

2025Q3: We expect net income to be approximately $300 million to $350 million with diluted earnings per share of $0.36 to $0.42, reflecting the impact of lower-for-longer crude pricing on our offshore business. - Cindy Taylor(CEO)

Are buybacks a priority over debt reduction currently? How is free cash flow being allocated? - Stephen Gengaro (Stifel, Nicolaus & Company, Incorporated, Research Division)

2024Q4: We're raising our full-year 2024 guidance for earnings per share to a range of $1.65 to $1.85, up $0.15 from the prior range. - Cindy Taylor(CEO)

Contradiction Point 5

Offshore Investment Trends

It reflects the company's strategic positioning and customer preferences, impacting future growth prospects.

Are you seeing a structural shift in customer capital spending from onshore to offshore, and will this consume a larger budget share, or is this a temporary response to weak commodity prices as offshore breakevens decline? - Unknown Analyst(Daniel Energy Partners)

2025Q3: The shift towards offshore is seen as a secular trend, driven by longer-lived reserves and lower AFE costs. Customers like Petrobras, focused on offshore, show a trend towards continued offshore investments. Although U.S. land offers shorter time to first production, offshore markets are favored due to higher production, slower decline curves, and lower breakeven commodity prices. - Cindy Taylor(CEO)

Are you seeing continued progress on existing plans despite macroeconomic uncertainties? - Jim Rollyson(Raymond James)

2025Q1: Development drilling programs are generally long-term and less sensitive to short-term commodity price movements. Our strong bookings reflect this, especially in offshore and international markets. - Cindy Taylor(CEO)